Does conventional wisdom make economic sense? In many cases, it doesn't. This blog will question the economic efficiency and market viability of popular "solutions" to today's problems. Copyright 2011.

Tuesday, July 22, 2008

Oil Speculation is Good!

Does $4 gas get you down? How about those high airline fares? I have heard the cry, "Quick Congress, do something!!!" Airlines have sent emails and taken out ads decrying speculation, yet if I recall, all airlines buy oil futures. Yes, buying futures is the same as speculating, and it is good!

In the 22 July edition of the Wall Street Journal, there is an editorial titled, "An Energy Sarbox." The editorial clearly details the 40 hearings Congress has had and all of the associated hand wringing. Before we go any further, the future purchasing of commodities is good for all consumers. It allows for businesses to plan how much of any commodity they will consume in the future, and for what price. It allows these same businesses to set stable prices. Additionally, it allows for contracts to be made on future outputs at fixed prices.

Back to the knuckleheads in Congress, the article spells out how the left goes back to the old power play book. Declare a crisis, then move in to increase power.

"Instead of merely increasing funding and manpower at the US Commodity Futures Trading Commission, it vastly broadens the CFTC's regulatory purview. It also orders the CFTC to distinguish between "legitimate" and "non-legitimate" traders."

So what happens when US lawmakers make doing business in America too expensive and difficult? They leave. So, if Congress wants to "wring the speculation out of the market," they are going to run all commodity exchanges out of the country. Yes, that would be the NYMEX (New York Mercantile Exchange) and the Chicago Mercantile Exchange. Guess what happens when things go overseas? You got it, they can't be regulated. So much for regulating "speculators," Congress!